The Court of Justice of the European Union (CJEU) has given a binding ruling that online site OnlyFans is liable to pay millions of pounds in VAT on subscriptions
Following an initial opinion last September, the UK tribunal’s request for a review of the rules at the European court has endorsed HMRC’s position on VAT liability for the social media platform.
HMRC sent Fenix International, the operator of OnlyFans, VAT assessments for £11m in VAT due for a period between 2017 and 2020, taking the view that Fenix had to be deemed to be acting in its own name and consequently had to pay VAT on all of the sum received from a fan and not only on the 20% of that sum which it levied by way of remuneration.
Fenix levies 20% on any sum paid to a creator to whom it charges the corresponding amount. On the sum which it levies in this way, Fenix applies VAT at a rate of 20%, which appears on the invoices which it issues.
OnlyFans users pay a variable rate subscription starting at around £5 up to £45 a month, a percentage of which is then paid to the creator of content.
Each creator has a ‘profile’ to which he or she uploads and publishes content, such as photos, videos and messages. Fans can access content uploaded by the creators they wish to follow or with whom they wish to interact, by making ad hoc payments or by paying a monthly subscription. Fans can also pay ‘tips’ or donations which do not give rise to the provision of any return content.
Fenix challenged the validity of the legal basis for the tax assessments, disputing the provision of an implementing regulation of the Council of the European Union and called for clarification of the implementation of the VAT directive.
The First Tier Tribunal (FTT) registered the request for a preliminary ruling on 22 December 2020 before the end of the transition period.
After its examination, the CJEU ruled that ‘by adopting the contested provision of the implementing regulation, the Council merely clarified the VAT Directive, without supplementing or amending it. Examination of the question referred has therefore disclosed no factor of such a kind as to affect the validity of the contested provision of the implementing regulation’.
It stressed that ‘a taxable person taking part in the supply of electronically supplied services through a telecommunications network, an interface or a portal such as a marketplace for applications, is to be “presumed to be acting in his own name but on behalf of the provider of those services”.’
The argument put forward by Fenix that it would be contrary to Article 28 of the VAT Directive to treat the taxable person referred to in that article as the supplier of services when the final customer is aware of the existence of the agreement between the principal and the agent and the identity of that principal cannot be accepted either, the ruling stated.
The VAT Directive establishes that a taxable person who, in the context of a supply of services, acts as an intermediary in his or her own name but on behalf of another person, is presumed to be the supplier of those services.
The case will now go back to the First Tier Tribunal in the UK.
